A Cautionary Note About Home Prices

By Cullen Roche of Pragmatic Capitalism

This note is intended to provide some perspective on what appears to be turning into an increasingly speculative fervor in residential real estate. I hope it provides some practical views on the current environment. 

It was just a year ago that I was here saying residential real estate is not a bubble and that hyperbolic narratives were going too far. And then in my 2022 annual outlook I said that speculating on residential real estate looked increasingly dangerous. Today, I feel bearish and I think new buyers need to be extremely prudent in navigating their home purchasing decision. To be clear, I am not here to declare a “housing bubble 2.0” or an imminent crash, but my baseline expected return is flat to modestly negative in the coming 3-5 years in an environment that could mirror the 1991 real estate recession. There are still many positive long-term trends in place, but the surge in prices combined with the surge in interest rates will create some headwinds in the coming years.

First some perspective on housing as an asset class… Read more